Treasury Wine Estates Limited
Treasury Wine Estates Limited (ASX: TWE) with a market cap of $10.27bn, is focused towards meeting the growing consumer interest across the globe and provide sustainable growth. TWE has continued its investment in brand portfolio initiatives and other potential opportunities to establish itself as a World class Wine company. The company has recently made an announcement on November 22, 2018 regarding the securement of new syndicated debt facility of $350m. With this syndicated debt facility, debt maturity profile of the company has increased. Further, the group is performing well and on track based on latest Q1 FY19 performance.
Strong financial performance driven by Distributor Model: ROCE (return on capital employed) for FY18 was recorded at 12.6% as compared to pcp (prior corresponding period) at 11.6%. There was a significant increase in EPS to 49.7 cents per share, up 36% over FY17, with 18% growth in EBITS up to $530.2m from $455.1m in FY17. EBITS margins posted a single digit growth supported by the business in America and growth from the Asia region, along with Australia and New Zealand and Europe region. Dividend payout increased by 23% to 32 cents per share for the full year. ROE showed significant increment as well.
TWE’s new route-to-market in the US has facilitated closer and stronger direct relationships with retail and distributor partners, enhancing the overall growth. Guidance for FY19 includes 25% growth in EBITS, while maintenance and capital replacement expenditure is said to remain within expected range.
Technically on a 3-month chart with daily candle interval, the scrip is in downtrend from the month of September and is continuing the trend for the current month of November. The scrip has dropped more than 20% over a period of last three months.Major indicators reflect for some pull back that can be expected.
Portfolio transformation by taking revenue driving initiatives along with the increased availability of Luxury wine, a strong pipeline of innovations, and distributor model will support the future growth of TWE. As on November 23, 2018, TWE has a P/E of 29.58x and beta above 1x, and this looks on a higher side. We thus look for a better entry opportunity on TWE that last traded at the current levels of $14.7, up 2.9% on November 23, 2018.
Aristocrat Leisure Limited
Aristocrat Leisure Limited (ASX: ALL) with a market cap of $16.64bn and licensed by more than 200 regulators with its product available in more than 90 countries, is a global provider of land-based and online gaming solutions. ALL with its diversified product basket provides service in gaming machines and casino management systems.
Operating Model (Source: Company Reports)
Strong Business model supported by expansion under both land-based and digital segments:ALL with its operations well diversified across 3 attractive gaming segments contributed total revenue of $1.64bn in 1H2018, with 37% of the revenue to $0.6bn contributed by digital segment, 34% contributed to $0.6bn by the Land-based gaming operations and remaining 29% of the revenue to $0.5bn contributed by Land-based Class III Outright Sales & Other segment. Digital segment under ALL is well positioned to address a broad spectrum of opportunities from the mobile gaming market.
In land-based segment, ALL is focused towards the investment in content and technology that will further expand its total install base and growth. Under its Digital segment, ALL is focused towards the integration of acquisitions by the introduction of new apps across the business units, well in line with the long term strategy.
Financial performance for the period 1H2018 reported slight dip in pro forma net gearing ratio to 2.0x against earlier period when acquisitions of Plarium and Big Fish were announced. Reported revenue posted significant growth of 33% backed by the growth in gaming operations and Digital segments supported by the launch of Cashman Casino in Product Madness and the acquisitions of Plarium and Big Fish. Net interest expense increased in 1H2018, indicating the increased debt levels. Free cash flow was reported at a lower level. ALL still managed to report 32% growth to $361.5 million in normalized profit after tax and before amortization of acquired intangibles for the period 1H2018, compared to $273 million in the prior corresponding period. The group expects improved performance for full year now.
Technically, ona 3-month chart with daily candle interval, the scrip is in downtrend from the month of August and is continuing the trend for the current month of November. As on November 23, 2018, ALL reported P/E at 32.9x and beta around 1x. Given the expansion efforts but overall stock downtrend while P/E is still in high zone, we have a watch stance on ALL at the current price levels of $25.93, down 14.7% in last three months.
Comparative Stock Prices (Source: Company Reports)
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